Microsoft agrees to buy aQuantive for $6 billion

Published 10:00 pm, Thursday, May 17, 2007

Microsoft Corp. plans to buy aQuantive Inc., a Seattle-based digital marketing and advertising firm, for about $6 billion in cash -- paying a premium to play catch-up in a critical online market.

The deal, announced Friday morning, would be the largest acquisition in Microsoft's history, giving the company the ability to offer display advertising on third-party Web sites, not just its own Windows Live and MSN properties.

It's also a huge turn of events for aQuantive, founded in Seattle in 1997. With about 2,600 employees, aQuantive will continue to operate from its Seattle headquarters as part of Microsoft's online services business, the companies said Friday morning. The company, which operates marketing services firm Avenue A/Razorfish, reported 2006 profit of $54 million on sales of $442.2 million.

It's not coming cheap. The $66.50-per-share purchase price represents an 85 percent premium to aQuantive's Thursday closing price of $35.87. Chris Liddell, Microsoft chief financial officer, acknowledged on a conference call that the company has bowed out of the race for other deals when the bidding got too high.

"In the case of aQuantive, we believe it is exactly the right company to buy, and hence we're willing to pay the value that we're talking about today," Liddell said. "We have been very selective in our acquisition approach, and waiting for what we consider to be the most strategically important acquisition."

The deal follows Google's planned acquisition of advertising company DoubleClick Inc. for $3.1 billion, and Yahoo Inc.'s agreement to buy the privately held online ad exchange Right Media Inc. for $680 million.

"I think they needed to be aggressive in this space," he said. "I think they felt like a number of assets had sort of been cleared off the table before they got to sit down."

Di Bona said the aQuantive technology seems to fit well with Microsoft, and he said aQuantive's Seattle location will also be a big help as the companies integrate.

Microsoft has called for regulators to closely scrutinize Google's DoubleClick acquisition for hurting competition in the online-advertising market. The company doesn't envision similar concerns with the aQuantive deal, Microsoft general counsel Brad Smith said Friday, because it adds complementary capabilities that Microsoft doesn't have.

The acquisition announcement comes just one day after WPP Group PLC, the world's second-largest advertising and marketing conglomerate, said it would buy online advertising company 24/7 Real Media Inc. for $649 million. Microsoft had been widely seen as a potential bidder for 24/7.

"Today's announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet," Microsoft Chief Executive Steve Ballmer said in a news release.

The deal is expected to be completed in the first half of Microsoft's fiscal 2008, which starts July 1. The acquisition is not expected to significantly impact the company's prior financial guidance. Liddell said the company isn't changing its operating income and earnings-per-share guidance for the upcoming fiscal year.

Share of aQuantive soared on the news Friday, climbing more than 77 percent to $63.59 as of 8 a.m. Pacific time. Microsoft shares were down 31 cents to $30.67.